India: The Real Estate (Regulation And Development) Act, 2016

Last Updated: 30 August 2017
Article by Rajesh Gupta

PREFACE :

  • The Real Estate Act, introduced in 2013, has been passed by the Indian Parliament and received the President's assent on 25.03.2016.
  • The Act intends to promote the interests of the consumers of both commercial and residential projects by bringing in transparency and safety in the market through a regulatory mechanism
  • The Act seeks to address the lacunae in the real estate sector and harmonize the relationship between the developer and the consumer
  • The Act is directed towards regulating the sector, which is considered to be second lowest in terms of consumer satisfaction
  • The Real Estate Regulation and Development Act(RERA) was set up to perform the same role for property transactions as SEBI does for security transactions in the capital markets.
  • The Preamble of the Act lays down the following Object :-

To establish an Real Estate Regulatory Authority for -

  • Regulation and promotion of real estate sector
  • To ensure transparency and efficiency in real estate sector
  • To protect interest of consumers
  • To establish an adjudicating mechanism
  • The Central Government has notified Sections 2, 20 – 39, 41- 58, 71-78, 81-92. The Central Government has also framed draft rules for Union Territories without Legislature.

SALIENT FEATURES:

  • Registration :

    • The Act provides for mandatory registration of Real Estate Projects above 500 sq mts or 8 apartments., including both residential as well as commercial projects and existing projects which have not received a completion certificate. [S.3]
    • The Registration is to be granted within 30 days of application, failing which it is deemed to have been granted. The Registration can be revoked with 30 days prior notice on such grounds as have been prescribed.
    • Contravention of the provision subjects the promoter to a penalty to the extend of 10% of the cost of real estate project and in case of a continuing offence, imprisonment to the extent of the 3 years and additional penalty of 10% of cost of real estate project
  • Registration of a Real Estate Agent :

    • The Act also provides for compulsory Registration of Real Estate Agents. It prohibits Agents from sale or purchase of any plot or apartment in a real estate project, until such project has been registered. Non-compliance of the provision subjects the agent to a penalty of Rs. 10,000 for everyday the offence continues, which may cumulatively extend up to 5% of the plot/apartment sold by the agent.
  • Regulatory Authorities :

    • The Act envisages establishment of Regulatory Authorities such as the Real Estate Regulatory Authority [RERA] (S. 20) and Real Estate Appellate Tribunal (S. 43) in each state/union territory for the purposes of giving effect to the provisions of the Act.
    • The Authorities shall be established within a period of 1 year of the commencement of the Act.
    • The Central Government has already notified Sections 20-39 and Sections 43-58 and thus, States are to establish the Regulatory Authorities by 30.04.2017.
    • RERA is to ensure registration of real estate projects and compliance of the provisions of the Act. It is a mechanism for redressal of consumers grievances against builders.
    • Appellate Tribunal is to hear appeal against the order of RERA.
  • Public Disclosures :

    • The Act makes it mandatory for the promoter to make publicly accessible disclosures of all information, details pertaining to the promoter, the real estate project, such as layout plans, government approvals, land title status, contractors, architects, schedule for completion, quarterly project related disclosures etc. details of cases pending, details of type of land and payments pending [S. 4(2) & S. 11]
    • These disclosures have to be made online on a website which will be set up by RERA.
    • Contravention of S. 4, subjects the promoter to penalty to the extend of 5% of cost of real estate project
  • Regulatory Authorities :

    • The Act envisages establishment of Regulatory Authorities such as the Real Estate Regulatory Authority [RERA] (S. 20) and Real Estate Appellate Tribunal (S. 43) in each state/union territory for the purposes of giving effect to the provisions of the Act.
    • The Authorities shall be established within a period of 1 year of the commencement of the Act.
    • The Central Government has already notified Sections 20-39 and Sections 43-58 and thus, States are to establish the Regulatory Authorities by 30.04.2017.
    • RERA is to ensure registration of real estate projects and compliance of the provisions of the Act. It is a mechanism for redressal of consumers grievances against builders.
    • Appellate Tribunal is to hear appeal against the order of RERA.
  • Public Disclosures :

    • The Act makes it mandatory for the promoter to make publicly accessible disclosures of all information, details pertaining to the promoter, the real estate project, such as layout plans, government approvals, land title status, contractors, architects, schedule for completion, quarterly project related disclosures etc. details of cases pending, details of type of land and payments pending [S. 4(2) & S. 11]
    • These disclosures have to be made online on a website which will be set up by RERA.
    • Contravention of S. 4, subjects the promoter to penalty to the extend of 5% of cost of real estate project
  • Risk-fencing of Project Receivables :

    • The Act mandates deposit of 70% of the amount realised from the allottees in a separate account. [ S. 4(2)l(D)]
    • Withdrawal from the account is permitted only for the purposes of land and construction cost and subject to certification by an engineer, architect and a chartered accountant.
    • A promoter shall not accept a sum more than 10% percent of the cost of the apartment/plot/building, an advance payment from a person without execution and registration of a written agreement for sale.
  • Carpet Area :

    • The Act mandates selling of units by developer on the basis of carpet area only.
    • S. 2(k) defines the term carpet area. It means net usable floor area of an apartment and excludes from its scope area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area.
  • No alteration/addition to sanctioned Plans [S. 14] :

    • The proposed project shall be developed and completed by the promoter in accordance with the sanctioned plans, layout plans and specifications.
    • The Promoter cannot make any alteration or addition to the sanctioned plans, without the consent of the buyer, in case of a plot/apartment/building and without the consent of 2/3rd of the allottees, in case of any alteration/addition to the sanctioned plans, specifications of buildings and common areas.
  • Project Guarantees/Warranties :

    • The promoter is liable for all structural defects caused within a period of five years from the date of handing over of possession to the allottee and it shall be the duty of the promoter to rectify them without any further charges, within 30 days. In case the promoter fails to do the same, the allottee is entitled to claim relief under the Act. [ S. 14(3)]
    • The promoter is to give a declaration so as to his legal title to the land or authenticate the validity of the title if it belongs to another person. The promoter is to also declare that the title is free from any encumbrance or disclose the details of encumbrance. [ S. 4(2)l(A) & S. 4(2)l(B) ]
    • The promoter is under an obligation to obtain an insurance with regards to the title of land and building and construction of the real estate project. [ S. 16 ]
    • The promoter is under an obligation to pay all outgoings, that is the land cost, ground rent, municipal or other local taxes, charges for water or electricity, maintenance charges, including mortgage loan and interest on mortgages or other encumbrances and such other liabilities payable to competent authorities, banks and financial institutions, which are related to the project, until he transfers the physical possession of the real estate project to the allottee or the assoicaitions of allottees [S. 15]
    • The promoter is bound to execute the conveyance deed within the time period provided in the sanctioned plan under the local laws. In the event there are no local laws governing the time period, the conveyance deed is required to be executed within a period of three months from the date of issue of the occupancy certificate, in case of absence of local laws.
  • Restriction on Alienation/Assignment/Transfer :

    • The promoter cannot transfer his majority rights and liabilities in the project to a third party without obtaining the consent of two-thirds of the allottees and prior written approval of the RERA. [S. 15]
    • On the transfer or assignment being permitted by the allottees and RERA, the intending promoter shall be required to independently comply with all the pending obligations under the provisions of the Act and the pending obligations as per the agreement for sale entered into by the erstwhile promoter with the allottees. Any transfer or assignment permitted shall not result in extension of time to the intending promoter to complete the real estate project and he shall be required to comply with all the pending obligations of the erstwhile promoter, and in case of default, such intending promoter shall be liable to the consequences of breach or delay, as the case may be, as provided under this Act or the rules and regulations made thereunder.
    • After an agreement of sale for a plot/apartment/building has been executed , the promoter cannot create a charge or mortgage such plot/apartment/building [S. 11(4)h ]
  • Refund , Interest and Compensation :

    • In event of delay in handing over possession, the allottee is entitled to refund of the amount along with interest and compensation, to be decided, in the manner as has been prescribed. If the allottee does not claim refund then he is entitled to interest for every month of delay. [S.18]
    • The allottee is liable to pay interest to the promoter for any delay in payment of any amount as contemplated by the agreement for sale or charges, such as registration, municipal taxes, water and electricity charges, etc.
  • Functions/Duties :

    • The Act contains extensive provisions with regards to the Rights, Functions and Duties of the Promoter, Allottee and the Real Estate Agent
    • The Act also provides for the functions of the RERA and the Appellate Tribunal
  • Punitive Provisions :

    • Chapter VIII of the Act provides with stringent penalties and imprisonment in certain in case non-compliance or contravention of the provisions of the Act.
  • Overriding Effect :

    • The provisions of the act are in addition to and not in derogation of any other law for the time being in force [S. 88]
    • The provisions of the Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law [S. 89]
    • The Act repeals the Maharashtra Housing (Regulation and Development) Act, 2012.
  • Other Provisions :

    • The Act set ups Central Advisory Council for the purposes of advise and recommendations to the Central Government on the matters of implementation, of the Act, policy changes and development of real estate sector.
    • The Act bars the jurisdiction of civil court from entertaining any suit or proceeding arising out of any matter which the Regulatory Authorities under the Act are to determine
    • The Act confers upon the Appropriate Government, RERA and Appellate Tribunal the power to make rules and regulations under the Act.

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